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A Perfect Trade for a Tough Market

I believe the odds of a double-dip recession in 2011 are high --
very high. The U.S. and global economies are struggling.

You might think that good earnings reports here in the United
States are indicative of an economy on the mend, but I suspect it
is nothing more than a nadir for most companies. The bar to
outperform last year's dismal numbers was set very, very low.

Add to this that companies are trying to recognize revenue this
year instead of next year when new taxes could hit everyone,
including businesses. Some studies show that for every +1% increase
in taxes, it results in a -1% decrease in
GDP
. If those studies are correct and if our GDP is growing by only
+2% or +3% in Q1 of 2011 without the tax hikes, the net impact of
tax increases could easily push GDP back into negative territory
and potentially into another recession.

Europe is now into a program of raising taxes and cutting spending.
This is not, in the opinion of many economists, a strategy for
growth. If the EU does not grow, its financial woes could
exacerbate.

I don't think it takes a professional chartist to see the next
couple of months could be ugly if you are long in this market. But
if you were following my
Mastering the Markets
premium trading letter closely this year, your portfolio would have
gained money while the S&P 500 has lost ground.

Has every trade been a winner? Nope. But that doesn't mean that I'm
unhappy about beating the market in the first six months of a very
tough market.

The bottom line is this: if U.S. and global economies move toward
another recession or they remain tepid at best, the outlook for an
increased demand for energy (oil and gas) could be significantly
dampened. Yes, the moratorium on drilling for oil in the Gulf of
Mexico will put more pressure on the supply side and could push oil
and gas prices higher, but I have a lot of concern that the
investor appetite for the energy sector will wane almost in direct
proportion to the declining economy.

With these points in mind, I want you to consider the chart below
of the
Energy Select Sector SPDR (NYSE:
XLE
)
. I think this
exchange-traded fund (
ETF
)
looks poised to move lower during the next five to six weeks and
could be a source of decent returns if shorted.

This sector has been dropping for the past 10 days and looks to
continue lower for the next five weeks. There is no guarantee as to
how low this drop could be, but -10% or more is certainly possible.

Action to Take-->
I have two other picks that could handsomely profit from
market weakness in my
Mastering the Markets
premium letter, but I think this fund looks poised to move lower
during the next five to six weeks and could be a source of decent
returns if shorted.

-- Mike Turner

Mike Turner serves as the Chief Trader behind Mastering the
Markets. A published author on the subject of trading, Mike also
speaks regulary at investment conferences such as the Money
Show. He is also the founder of Sabinal Capital Investments, a
professional money-management firm based in Austin, Texas. Read
more...

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